Whatever one’s thoughts on the cukai makmur prosperity tax — which unlike a windfall tax, makes no distinction on whether any particular business or sector benefitted from the pandemic — the move to impose a 33% tax rate on companies that can afford it, even for just one year, reflects a desperate need to shore up revenue.
We know that a shortfall in tax revenue led to Budget 2021 being revised lower, despite this being a pandemic year. Corporate income tax, which makes up 22% to 28% of total federal government revenue and is the largest contributor of direct taxes, came in about RM9 billion short of estimates in 2020 and collection was revised lower by about RM5 billion for 2021. Petronas was already being tapped for RM7 billion more dividend for 2021 after giving an extra RM10 billion in 2020. There is a limit to how much more debt can be taken without repercussion.
Rather than risk angering voters ahead of the Melaka state polls, the government chose to go against the trend of corporate tax cuts seen in a number of regional countries over the past two years. The Philippines lowered the corporate tax rate from 30% to 25% from January. In June, Bangladesh cut the tax rate for listed entities to 22.5% from 25% for FY2022, and for non-listed entities to 30% from 32.5%. In September last year, Vietnam, which has a 20% corporate tax rate, gave a 30% discount on the amount payable for FY2020.
To be sure, taxing large companies that are already paying taxes would be easy to implement. Corporations with over RM100 million taxable profits can well afford to pay if the tax rate is 33% instead of 24% for one year. Companies tapped to do “national service” need to be sure that the move is a one-off. Telling them how the money is helping those less fortunate could help. It is after all more blessed to give than to receive.
Like the additional dividends asked from Petronas, the one-off higher tax rate would buy a bit more time but will not change the fact that real revenue reforms need to happen fast. Prove critics wrong and show there is political will to reimplement a broad-based consumption tax fast and well.